Insurers Face Jumbled Market With Health Exchange Rules

By Alex Wayne -
Dec 12, 2012

UnitedHealth Group Inc. (UNH), the biggest
U.S. health insurer, will face a fragmented regulatory landscape
in 2014 under the first state insurance marketplaces approved as
part of the health-care overhaul.

Rules for the six state insurance exchanges that won
conditional approval from the Obama administration Dec. 10 are
split evenly between those with strict criteria for companies
that want to participate and states that have opened their
exchanges to all comers, a scenario supported by the insurance
industry. A high bar for inclusion could limit the number of
insurers offering health plans in some states.

The exchanges, the heart of the 2010 Affordable Care Act’s
plan to expand health care to 30 million people, have less than
a year to open online platforms where local residents, with the
help of federal tax credits, can shop online for insurance. The
approved states are Connecticut, Maryland, Colorado, Oregon,
Massachusetts and Washington, all led by Democratic governors.

“The challenge is it’s all new,” said Kim Holland,
executive director for state affairs at the Blue Cross Blue
Shield Association, a Washington-based trade group that
represents 38 state insurance plans. “We have a really, really
short period of time in order to get everything done.”

Enrollment in the exchanges must begin by Oct. 1 for plans
that will take effect Jan. 1, 2014. The U.S. government plans to
give states that run their own exchanges a share of about $2
billion to help get them started.

In Connecticut, regulators are taking a strict approach by
making insurers meet requirements for patient access to doctors
that exceed those of the federal Affordable Care Act. Insurers
will have to make two-year commitments to participate in the
Connecticut Health Insurance Exchange, and include almost all of
the state’s U.S.-funded health clinics in their networks.

‘Passionate Role’

“The board saw its role as being very, I’d say, passionate
about supporting consumers and trying to establish standards
where health plans could reach to a slightly higher bar than
required in the ACA,” said Kevin Counihan, chief executive
officer of the Connecticut exchange.

At the same time, Maryland said it’s letting any plan that
meets federal standards sell coverage at the start as the state
rushes to craft a marketplace that will be popular with both
consumers and insurers.

“What we’re focused on in the initial couple of years is
really getting as many people enrolled on the exchange as
possible,” Rebecca Pearce, executive director of the Maryland
Health Benefit Exchange, said in a phone interview. “To do that
we need to make sure we have as many carriers as possible.”

‘Unlevel Field’

Insurers are worried about measures that might create “an
unlevel playing field,” according to Holland, a former Oklahoma
insurance commissioner, speaking in a telephone interview.
“Anything that would create market variation or lack of
consistency would be problematic.”

Daryl Richard, a UnitedHealth spokesman, said the
Minnetonka, Minnesota-based company is in the process of
researching how each of the state’s exchanges may be structured.

“Given the regulatory variation from state to state -- and
many states have not yet formalized their exchange models -- we
have not yet made any decisions about where we will be offering
our health plans through the exchanges,” Richard said.

UnitedHealth is not the only for-profit insurer looking at
the exchanges warily, said Robert Zirkelbach, a spokesman for
America’s Health Insurance Plans, the industry’s lobbying group
in Washington.

The group has generally opposed practices like those of
Connecticut, a model called “active purchasing” through which
some insurers may be excluded from selling their plans, he said.

Maximizing Choice

“There’s already variation in how health insurance is
regulated state by state,” Zirkelbach said in a telephone
interview. “The important thing is how the exchanges are
structured, ensuring they’re done in a way that will maximize
choice and competition for consumers and employers.”

States with extra rules run the risk that insurers won’t
participate in their exchanges, said Ana Gupte, an analyst with
Sanford C. Bernstein & Co. in New York.

“I’m sure the insurance industry will go in with good
faith of wanting to play everywhere they possibly can, but they
can always reduce their effort and involvement over time,” she
said in a phone interview. “It’s a balance, because you do want
the large publicly traded players and the big Blue Cross Blue
Shield to of course all be there, in addition to the smaller
not-for-profits.”

December Deadline

A majority of the remaining 50 U.S. states may let the U.S.
run the markets or choose to provide services such as consumer
assistance in a partnership with the federal government.

Twenty-two governors, all Republicans, have already sent
notice that they won’t build their own exchanges. The rest have
until Dec. 14 to decide.

No more than three or four additional states are expected
to build exchanges themselves, according to estimates made by
Bryce Williams, a managing director at the consulting company
Towers Watson, in a phone interview last week.

Nationwide, health plans will be required to meet certain
minimum qualifications for participating in the exchanges, such
as offering sufficient networks of doctors and hospitals and
meeting federal limits on out-of-pocket costs. The law lets
states set additional rules.

Being Selective

In states that already have many competing health plans,
“the exchange can afford to be a little more selective, versus
a state where there aren’t that many health plans, or the
politics are such that they don’t believe in as active a state
role,” said Jon Kingsdale, a former executive director at the
Massachusetts’ health exchange and a managing director at Wakely
Consulting Group, an adviser for five of the six states that won
approval.

Maryland may establish stricter rules aimed at driving down
health-care costs, “at the point we have the market behind
us,” Pearce said. The state’s marketplace has already drawn
interest from 10 companies, including UnitedHealth and Aetna
Inc. (AET), and will be open to any plan that meets the federal
minimum rules, with a few technical modifications, until at
least 2016, she said.

Connecticut will require all health plans to commit to sell
plans in its exchange for at least two years, and they face a
two-year “lockout” period if they exit the exchange, said
Counihan, the CEO of the state’s exchange. Plans will also have
to include at least 90 percent of the state’s federally funded
health clinics in their networks, a rule aimed at protecting
low-income people, he said in an interview.

Massachusetts’s Health Connector, the exchange that has
operated in that state since 2006, has added carriers even as it
imposed rules that include requiring insurers to offer standard
benefit packages, said Glen Shor, the executive director.

“We work very closely with all of our insurers to
structure rules that empower consumers but make it as easy as
possible for insurers to work with us,” he said in a telephone
interview. “It is a delicate balance to strike.”